Supreme Court finds Directors may be sued for defect construction works

Supreme Court finds Directors may be sued for defect construction works

In Boulus Constructions Pty Ltd v Warrumbungle Shire Council [2022] NSWSC 1368, which was decided on 12 October 2022, the Supreme Court refused to limit the class of “persons” who owe a duty of care under section 37 of the Design and Building Practitioners Act 2020 (NSW) (Act). Section 37 imposes a statutory duty on “a person who carries out construction work”. The duty is to exercise reasonable care to avoid economic loss caused by defects. It is owed to each owner of the land, and each subsequent owner, including Owners Corporations. In other words, it allows an Owners Corporation to sue the builder of a strata scheme for economic loss caused by defects, even though the Owners Corporation never had a contract with the builder.

On 12 October 2022, Stevenson J granted leave (i.e., permission) for a director and employee of the builder to be joined to the proceedings. In doing so, Stevenson J found that the director and the employee of the builder may be “persons” who owe a duty of care under section 37 of the Act. Indeed, Stevenson J rejected the argument made by the builder that imposing the duty under section 37 on a director of a company would be contrary to one of the central tenants of company law, whereby companies are independent of their directors and shareholders.

The decision was made in the preliminary stages of the proceedings. Accordingly, a final and binding decision is yet to be made on the issue. However, Stevenson J’s detailed analysis (spanning 42 paragraphs) of the meaning of the word “person” in section 37 has broad implications for the construction industry. In particular, it leaves open the possibility that Owners Corporations may sue directors and employees of building companies who have carried out defective construction work.

The decision can be found at this link: LINK

Article by: Jackson O’Keeffe, Associate – 27th October 2022